SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                               ------------------
                                    FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1999
                           Commission File No. 0-23611

                                DSET Corporation
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

         New Jersey                                      22-3000022
-------------------------------             ------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

1160 US Highway 22, Bridgewater, New Jersey                               08807
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                             (Zip Code)

                                 (908) 526-7500
                         -------------------------------
                         (Registrant's Telephone Number,
                              Including Area Code)


     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

               Yes:  X                                 No:
                   ----                                   ----

     Indicate  the  number of  shares  outstanding  of each of the  Registrant's
classes of common stock,  as of October 29, 1999:

          Class                                        Number of Shares
          -----                                        ----------------

   Common Stock, no par value                             10,611,888


<PAGE>

                                DSET CORPORATION

                                TABLE OF CONTENTS
                                -----------------


                                                                           Page
                                                                           ----

PART I.   FINANCIAL INFORMATION..........................................    1

     Item 1.  Financial Statements.......................................    1

              Consolidated Balance Sheets as of September 30, 1999
                (unaudited) and December 31, 1998 (audited)..............    2

              Consolidated Statements of Income for the Three Months
                Ended September 30, 1999 and 1998 (unaudited)............    3

              Consolidated Statements of Income for the Nine Months
                Ended September 30, 1999 and 1998 (unaudited)............    4

              Consolidated Statements of Cash Flows for the Nine Months
                Ended September 30, 1999 and 1998 (unaudited)............    5

              Notes to Consolidated Financial Statements (unaudited).....    6

     Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations........................   11

              Forward-Looking Statements.................................   12

              Results of Operations......................................   13

              Liquidity and Capital Resources............................   15

              Year 2000 Compliance.......................................   17

              European Monetary Union....................................   20

     Item 3.  Quantitative and Qualitative Disclosures About Market Risk.   20

PART II.   OTHER INFORMATION.............................................   21

     Item 2.  Changes in Securities and Use of Proceeds..................   21

     Item 5.  Other Information..........................................   22

     Item 6.  Exhibits and Reports on Form 8-K...........................   23

SIGNATURES ..............................................................   24


                                      -i-


<PAGE>



                          PART I. FINANCIAL INFORMATION
                          -----------------------------

                          Item 1. Financial Statements.




                                      -1-
<PAGE>

                                DSET CORPORATION
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                            SEPTEMBER 30, 1999       DECEMBER 31, 1998
                                                            ------------------       -----------------
                     ASSETS                                     (unaudited)              (audited)
<S>                                                          <C>                      <C>
Current assets:
  Cash and cash equivalents............................      $     1,846,002          $     1,159,070
  Marketable securities................................           38,015,556               43,863,980
  Accounts receivable, net of allowance for doubtful
    accounts of $251,403 and $175,979..................           16,037,069                9,108,059
  Deferred income taxes................................              469,454                  258,144
  Prepaid expenses and other current assets............              561,367                  193,418
                                                               --------------           --------------
    Total current assets...............................           56,929,448               54,582,671

Acquired technology, net...............................            4,488,108                       --
Capitalized software development costs, net............              618,649                       --
Fixed assets, net......................................            3,090,156                1,592,114
Goodwill, net..........................................            1,501,683                  129,864
Other assets...........................................            1,452,743                  548,963
                                                               --------------           --------------
    Total assets.......................................      $    68,080,787          $    56,853,612
                                                               ==============           ==============

        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses................      $     5,062,030          $     3,560,994
  Income taxes payable.................................              955,537                  145,673
  Deferred revenues....................................            1,889,763                1,726,906
  Note payable.........................................            1,068,750                  111,657
  Current portion of capital lease obligation..........              126,198                       --
                                                               --------------           --------------
    Total current liabilities..........................            9,102,278                5,545,230
  Long term portion of capital lease obligation........              602,219                       --
  Long term note payable...............................            1,282,029                       --
  Deferred income taxes................................              762,131                  119,127
                                                               --------------           --------------
    Total liabilities..................................           11,748,657                5,664,357
                                                               --------------           --------------

Commitments

Shareholders' equity:
Common stock, no par value; 40,000,000 shares
  authorized, 10,567,900 and 9,817,559 shares
  issued and outstanding at September 30, 1999
  and December 31, 1998, respectively..................           43,735,456               41,912,361
Deferred stock compensation............................             (305,689)                (494,306)
Retained earnings......................................           13,091,437                9,731,077
Unrealized appreciation (depreciation)
  on investments.......................................             (189,074)                  40,123
                                                               --------------           --------------
    Total shareholders' equity.........................           56,332,130               51,189,255
                                                               --------------           --------------
    Total liabilities and shareholders' equity.........      $    68,080,787          $    56,853,612
                                                               ==============           ==============
</TABLE>





   The accompanying notes are an integral part of these financial statements.

                                      -2-
<PAGE>

                               DSET CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED SEPTEMBER 30,
                                                      -------------------------------------
                                                              1999                1998*
                                                      ----------------     ----------------
<S>                                                    <C>                 <C>
REVENUES:
  License revenues..............................       $    6,558,838      $    3,706,650
  Service revenues..............................            6,350,351           4,115,359
                                                         -------------       -------------
      Total revenues............................           12,909,189           7,822,009
                                                         -------------       -------------

COST OF REVENUES:
  License revenues..............................              622,169             392,599
  Service revenues..............................            2,078,658           1,220,544
                                                         -------------       -------------
      Total cost of revenues....................            2,700,827           1,613,143
                                                         -------------       -------------

    Gross profit................................           10,208,362           6,208,866
                                                         -------------       -------------

OPERATING EXPENSES:
  Sales and marketing...........................            3,351,419           2,296,794
  Research and product development..............            2,956,103           1,496,261
  General and administrative....................            1,201,819             600,391
                                                         -------------       -------------
      Total operating expenses..................            7,509,341           4,393,446
                                                         -------------       -------------

    Operating income............................            2,699,021           1,815,420

Amortization....................................              (16,702)             (9,502)
Interest expense and other income (expense).....              (21,017)            (17,117)
Interest income.................................              567,237             604,521
                                                         -------------       -------------
Income before taxes.............................            3,228,539           2,393,322

Provision for income taxes......................            1,093,326             849,399
                                                         -------------       -------------
Net income......................................       $    2,135,213      $    1,543,923
                                                         =============       =============

OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized appreciation (depreciation)
  investments...................................              (23,596)             56,508
                                                         -------------       -------------
Comprehensive income............................            2,111,617           1,600,431
                                                         =============       =============

Net income per common share.....................       $         0.20      $         0.16
                                                         =============       =============
Weighted average number of common shares
  outstanding...................................           10,512,423           9,556,439
                                                         =============       =============

Net income per common share assuming
  dilution......................................       $         0.19      $         0.13
                                                         =============       =============
Weighted average number of common shares and
  common equivalent shares outstanding..........           11,507,859          11,451,547
                                                         =============       =============
</TABLE>

         *Certain amounts have been reclassified for comparative purpose
   The accompanying notes are an integral part of these financial statements.


                                      -3-
<PAGE>

                                DSET CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                         NINE MONTHS ENDED SEPTEMBER 30,
                                                      ------------------------------------
                                                              1999              1998*
                                                      ------------------------------------
<S>                                                    <C>                 <C>
REVENUES:
  License revenues............................          $   15,957,911      $    9,923,234
  Service revenues............................              13,545,246          10,161,077
                                                          -------------       -------------
      Total revenues..........................              29,503,157          20,084,311
                                                          -------------       -------------

COST OF REVENUES:
  License revenues............................               1,183,836           1,147,305
  Service revenues............................               4,982,869           2,854,423
                                                          -------------       -------------
      Total cost of revenues..................               6,166,705           4,001,728
                                                          -------------       -------------

    Gross profit..............................              23,336,452          16,082,583
                                                          -------------       -------------

OPERATING EXPENSES:
  Sales and marketing.........................               8,727,551           6,392,672
  Research and product development............               7,766,042           4,596,538
  General and administrative..................               3,187,824           1,777,144
                                                          -------------       -------------
      Total operating expenses................              19,681,417          12,766,354
                                                          -------------       -------------

    Operating income..........................               3,655,035           3,316,229

Amortization..................................                (103,545)            (28,506)
Interest expense and other income (expense)...                 (96,472)            (44,834)
Interest income...............................               1,674,522           1,276,641
                                                          -------------       -------------
Income before taxes...........................               5,129,540           4,519,530

Provision for income taxes....................               1,769,180           1,632,856
                                                          -------------       -------------
Net income....................................          $    3,360,360      $    2,886,674
                                                          =============       =============

OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized appreciation (depreciation)
  investments.................................                (151,271)             56,508
                                                          -------------       -------------
Comprehensive income..........................               3,209,089           2,943,182
                                                          =============       =============

Net income per common share...................          $         0.33      $         0.33
                                                          =============       =============
Weighted average number of common shares
  outstanding.................................              10,314,884           8,757,044
                                                          =============       =============

Net income per common share assuming
  dilution....................................          $         0.30      $         0.26
                                                          =============       =============
Weighted average number of common shares and
  common equivalent shares outstanding........              11,347,781          10,912,984
                                                          =============       =============
</TABLE>

         *Certain amounts have been reclassified for comparative purpose
   The accompanying notes are an integral part of these financial statements.


                                      -4-
<PAGE>

                                DSET CORPORATION
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 NINE MONTHS ENDED SEPTEMBER 30,
                                                              ------------------------------------
                                                                    1999                1998*
                                                              ------------------------------------
<S>                                                         <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income..........................................      $    3,360,360       $    2,886,674
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Deferred income taxes...........................             431,694                   --
      Tax benefit from exercise of stock options......             734,919              525,285
      Depreciation....................................             593,036              350,062
      Amortization....................................             231,970               28,507
      Amortization of deferred stock compensation.....             188,617              246,202
      Loss from joint venture.........................              36,238               18,892
      Loss (gain) on disposal of assets...............               4,535               (1,716)
      Changes in assets and liabilities:
        Accounts receivable...........................          (6,860,261)             691,800
        Other assets..................................            (481,707)             (38,401)
        Accounts payable and accrued expenses.........           1,330,797              565,724
        Income taxes payable..........................             779,112              673,565
        Deferred revenues.............................             333,096             (309,702)
                                                              -------------        -------------
         Net cash provided by operating activities....             682,406            5,636,892
                                                              -------------        -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale/maturities of marketable
  securities..........................................         102,997,655           43,151,932
  Purchases of marketable securities..................         (97,378,429)         (82,323,988)
  Acquisition of assets:
    Acquired technology...............................          (3,138,072)                  --
    Goodwill..........................................          (1,351,163)                  --
  Capitalized software development costs..............            (634,788)                  --
  Acquisition of fixed assets.........................          (1,754,912)            (474,556)
  Proceeds from disposition of fixed assets...........                  --                3,059
                                                              -------------        -------------
         Net cash used in investing activities........          (1,259,709)         (39,643,553)
                                                              -------------        -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from capital sale/leaseback................             402,761                   --
  (Loans to) repayment from officers and
    shareholders, net.................................            (100,000)             100,000
  Repayment of note payable...........................            (111,657)            (165,000)
  Repayments capital lease obligation.................             (15,045)                  --
  Proceeds from the issuance of common stock (net)....                  --           36,082,626
  Proceeds from exercise of stock options.............           1,088,176              440,529
                                                              -------------        -------------
         Net cash provided by financing activities....           1,264,235           36,458,155
                                                              -------------        -------------
         Net increase in cash and cash equivalents....             686,932            2,451,494
Cash and cash equivalents, beginning of period........           1,159,070            2,081,846
                                                              -------------        -------------
Cash and cash equivalents, end of period..............      $    1,846,002       $    4,533,340
                                                              =============        =============

Supplemental disclosure of cash flow information:
  Cash paid during the period for income taxes........      $      492,701       $      499,394

  Cash paid during the period for interest............              55,560               10,378
Non-cash activities:
  Conversion of Series A preferred stock to common
    stock.............................................                  --           11,603,996
  Lease of fixed assets...............................             340,702                   --
  Issuance of note payable in acquisition.............           2,282,031                   --
</TABLE>

         *Certain amounts have been reclassified for comparative purpose
   The accompanying notes are an integral part of these financial statements.

                                      -5-
<PAGE>

                                DSET CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 -- BASIS OF PRESENTATION:

     The consolidated information presented for September 30, 1999 and 1998, and
for the three-month and nine-month periods then ended, is unaudited, but, in the
opinion of DSET  Corporation's  (the  "Company")  management,  the  accompanying
unaudited  financial  statements  contain all  adjustments  (consisting  only of
normal recurring adjustments) which the Company considers necessary for the fair
presentation  of the Company's  financial  position as of September 30, 1999 and
the  results  of its  operations  and its cash  flows  for the  three-month  and
nine-month  periods ended September 30, 1999 and 1998. The financial  statements
included  herein  have been  prepared  in  accordance  with  generally  accepted
accounting  principles  and the  instructions  to Form  10-Q and  Rule  10-01 of
Regulation  S-X.  Accordingly,  certain  information  and  footnote  disclosures
normally included in financial  statements prepared in accordance with generally
accepted accounting  principles have been condensed or omitted.  These financial
statements  should  be read in  conjunction  with  the  Company's  1998  audited
financial  statements and  accompanying  notes and  Management's  Discussion and
Analysis of  Financial  Condition  and Results of  Operations  contained  in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.

     Results for the interim  period are not  necessarily  indicative of results
that may be expected for the entire year.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     CONSOLIDATION

     The  consolidated  entity  includes DSET  Corporation  and its wholly owned
subsidiaries,  DSET Acquisition  Corp., a Delaware  corporation,  Konark Inc., a
California  corporation,  PIC Technologies,  Inc., a Delaware  corporation,  and
Chengdu DSET Science & Technology Co., Ltd. (China).

     CASH AND CASH EQUIVALENTS

     The  Company  considers  all highly  liquid  investments  purchased  with a
maturity of three months or less to be cash equivalents.

     MARKETABLE SECURITIES

     The marketable  securities portfolio held by the Company consists primarily
of short-term  securities  of grade A or better with  maturities of two years or
less which are  considered to be available for sale  securities and are reported
at fair value.  Unrealized depreciation on investments was $189,074 at September
30, 1999. At September 30, 1998 unrealized appreciation was $85,618.



                                      -6-
<PAGE>

     CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     Capitalization  of software  development  costs begins on  establishment of
technological   feasibility.   Costs   incurred   prior  to   establishment   of
technological  feasibility  are  charged to  research  and  product  development
expense.  The ongoing assessment of recoverability of capitalized costs requires
considerable  judgment by management with respect to certain  factors  including
the  anticipated  future gross revenue,  estimated  economic life and changes in
technology.   These  factors  are  considered  on  a  product-by-product  basis.
Amortization of software development costs is the greater of the amount computed
using (a) the ratio that current gross  revenues for a product bear to the total
of current and  anticipated  future  gross  revenues for that product or (b) the
straight-line  method over the  remaining  estimated  economic life ranging from
three to five years of the product including the period being reported on.

     ACQUIRED TECHNOLOGY

     Acquired  technology  represents the costs of feasible  technology acquired
from external sources.  At September 30, 1999,  acquired technology reflects the
purchase  price of certain  assets of Network  Programs  LLC  ("NPL") and Konark
Inc., as well as related costs to acquire such assets.

     Amortization  of acquired  technology is the greater of the amount computed
using (a) the ratio that current gross  revenues for a product bear to the total
of current and  anticipated  future  gross  revenues for that product or (b) the
straight-line  method over the  remaining  estimated  economic life ranging from
three to five years of the product including the period being reported on.

     REVENUE RECOGNITION

     License  revenue is  recorded  when the  software  has been  shipped to the
Company's licensees and all significant obligations have been satisfied. Revenue
from run-time  licenses is recognized as equipment using the Company's  software
is deployed by the Company's customers.  Custom application  development service
revenue is recognized over the period in which the service is performed based on
the percentage of direct labor costs incurred to the total costs estimated.

     Service revenue from maintenance  contracts is deferred and recognized over
the term of the respective contracts (typically twelve months).

     Software  arrangements  involving  multiple  elements are allocated to each
element based on vendor specific objective evidence of the elements.

     INCOME TAXES

     The Company utilizes an asset and liability approach to financial reporting
for income  taxes.  Deferred  income tax assets  and  liabilities  are  computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future,
based on  enacted  tax laws and  rates  applicable  to the  period  in which the
differences  are expected to affect  taxable  income.  Valuation  allowances are


                                      -7-
<PAGE>

established,  when  necessary,  to reduce the  deferred tax assets to the amount
expected to be realized.

     For certain  stock  options,  the Company  receives a tax deduction for the
difference  between the fair market value of the  Company's  Common Stock on the
date of exercise of the stock option and the exercise  price.  To the extent the
amount  deducted for income taxes exceeds the amount  charged to operations  for
financial  statement  purposes,   the  related  tax  benefits  are  credited  to
shareholders' equity.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  carrying  amounts  in the  financial  statements  for  cash  and  cash
equivalents,  accounts  receivable,  and accounts  payable and accrued  expenses
approximate   their  market  value  because  of  the  short  maturity  of  those
instruments.

     RECENTLY ISSUED ACCOUNTING STANDARDS

     On September 15, 1998,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting Standards No. 133 "Accounting for Derivatives
and Hedging  Activities"  ("SFAS No.  133").  SFAS No. 133 is effective  for all
fiscal  quarters of all fiscal years beginning after September 15, 1999 (January
1, 2000 for the Company).  SFAS No. 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value.  Changes in the fair value
of  derivatives   are  recorded  each  period  in  current   earnings  or  other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction.  Management of
the Company anticipates that, due to its limited use of derivative  instruments,
the adoption of SFAS No. 133 will not have a significant effect on the Company's
results of operations or its financial position.

NOTE 3 -- NPL ACQUISITION:

     On January 25, 1999, DSET Acquisition  Corp., a wholly-owned  subsidiary of
the Company,  consummated the acquisition of certain assets of NPL. The purchase
price consisted of $2,500,000 payable in cash to NPL.

     The costs to acquire NPL are recorded as acquired  technology and goodwill.
In  addition,  research  and  development  costs  associated  with  bringing the
acquired assets to market have been recorded as capitalized software development
costs. Amortization of these costs commenced with the shipment of the product in
the  second  quarter  of 1999;  amortization  expense  related to this asset was
$128,425  through  September 30, 1999. All future  development  costs associated
with the product will be expensed.

NOTE 4 -- KONARK INC. ACQUISITION:

      On September  30, 1999 DSET  Corporation  purchased  the capital  stock of
Konark Inc. ("Konark") and related  technologies owned by an affiliate of Konark
for an aggregate of  approximately  $3.3 million  financed  through cash paid at
closing and certain deferred payments. The acquisition price, along with certain
other  acquisition  costs and  associated  deferred tax



                                      -8-
<PAGE>
liabilities, have been recorded as acquired technology and goodwill that will be
amortized over the next five years.

NOTE 5 -- INITIAL PUBLIC OFFERING:

     On March 18, 1998, the Company  consummated  an initial public  offering of
3,500,000  shares of its  Common  Stock at a price to the  public of $16.00  per
share,  of which  2,500,000  shares  were  issued  and sold by the  Company  and
1,000,000 shares were sold by certain  shareholders of the Company (the "Selling
Shareholders").  The  net  proceeds  to  the  Company  from  the  offering  were
approximately $36.1 million. On April 7, 1998, certain Selling Shareholders sold
an additional  525,000  shares of the  Company's  Common Stock at a price to the
public  of  $16.00  per  share  upon the  consummation  of the  exercise  of the
Underwriters'  over-allotment  option.  The  Company  did not receive any of the
proceeds from the sale of shares by the Selling Shareholders.

     The net  proceeds  received by the Company  upon the  consummation  of such
offering,   pending   specific   application,   were  invested  in   short-term,
investment-grade,   interest-bearing  instruments.  See  "Item  2.  Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Liquidity and Capital Resources."

NOTE  6 -- EARNINGS PER SHARE:

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 128,  "Earnings per Share" (EPS),  which
specifies the computation, presentation and disclosure requirements for earnings
per share of entities  with  publicly  held company  stock or  potential  common
stock.  The  statement  defines two earnings per share  calculations,  basic and
diluted.  The objective of basic EPS is to measure the  performance of an entity
over the reporting  period by dividing  income  available to common stock by the
weighted average shares outstanding.  The objective of diluted EPS is consistent
with that of basic EPS, that is to measure the performance of an entity over the
reporting  period,  while giving effect to all dilutive  potential common shares
that were  outstanding  during the  period.  The  calculation  of diluted EPS is
similar to basic EPS except the  denominator  is increased for the conversion of
potential  common  shares.  The  following  table  is a  reconciliation  of  the
numerator and denominator under each method:
<TABLE>
<CAPTION>
                                            FOR THE THREE MONTHS ENDED SEPTEMBER 30,
                            ---------------------------------------------------------------------------
                                          1999                                   1998
                            ------------------------------------  -------------------------------------
                                                     PER SHARE                               PER SHARE
                            INCOME       SHARES        AMOUNT       INCOME       SHARES       AMOUNT
                            ------       ------      ---------      ------       ------      ----------
<S>                      <C>           <C>            <C>        <C>             <C>          <C>
BASIC EPS:
Net income
applicable to
common shares.......     $ 2,135,213   10,512,423     $  0.20    $ 1,543,923     9,556,439    $  0.16

ASSUMING
DILUTION:
Net income
applicable to
common shares:
  Warrants..........              --      150,893                         --       154,634
  Stock options.....              --      844,543                         --     1,740,474
                         -----------   ----------                -----------   -----------
                         $ 2,135,213   11,507,859     $  0.19    $ 1,543,923    11,451,547    $  0.13
                         ===========   ==========                ===========    ==========
</TABLE>

                                      -9-
<PAGE>
<TABLE>
<CAPTION>
                                             FOR THE NINE MONTHS ENDED SEPTEMBER 30,
                            ---------------------------------------------------------------------------
                                          1999                                   1998
                            ------------------------------------  -------------------------------------
                                                     PER SHARE                               PER SHARE
                            INCOME       SHARES        AMOUNT       INCOME       SHARES       AMOUNT
                            ------       ------      ---------      ------       ------      ----------
<S>                      <C>           <C>            <C>        <C>             <C>          <C>
BASIC EPS:
Net income
applicable to
common shares.......     $ 3,360,360   10,314,884     $  0.33    $ 2,886,674     8,757,044    $  0.33

ASSUMING
DILUTION:
Net income
applicable to
common shares:
  Warrants..........              --      152,543                         --       157,484
  Stock options.....              --      880,354                         --     1,998,456
                         -----------   ----------                -----------   -----------
                         $ 3,360,360   11,347,781     $  0.30    $ 2,886,674    10,912,984    $  0.26
                         ===========   ==========                ===========    ==========
</TABLE>

NOTE 7 -- CAPITAL LEASE OBLIGATION:

     In June 1999, the Company  entered into a five year capital lease agreement
mainly for office  furniture and fixtures in the new facilities in  Bridgewater,
New Jersey and Plano,  Texas at an annual  interest rate of 8.21%.  Annual lease
payments approximate $180,000.  Assets recorded under this lease are included in
fixed assets as follows:

                                        September 30, 1999     December 31, 1998
                                        ------------------     -----------------
      Furniture and fixtures......        $    743,462           $        --
      Accumulated amortizations...             (24,999)                   --
                                        ------------------     -----------------
                                          $    718,463           $        --
                                        ==================     =================




                                      -10-
<PAGE>

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS.

GENERAL

     DSET is a leading provider of software  solutions created  specifically for
the global telecommunications  marketplace. The DSET suite of electronic-bonding
gateways  interconnects  the  operational  support  systems ("OSS") of competing
telecommunications  providers  that must  trade  information  and share  network
capabilities to serve customers.  In addition,  DSET's local number  portability
("LNP")  solutions  also  play  a key  role  in  enabling  customers  to  change
telecommunications service providers without changing their local phone numbers.
The  Telecommunications  Act of 1996 encourages  competition  among providers of
local  phone  services  by  requiring  the  incumbent  regional  Bell  operating
companies  to allow  competitive  local  exchange  carriers  ("CLECs")  to lease
portions of the  incumbents'  networks and access their OSSs.  Hundreds of CLECs
are vying to win customers  from the  incumbents by offering  better pricing and
service.  With  DSET  solutions,  CLECs  can  complete  key  tasks  that  assist
"provisioning"  or  "service-fulfillment"  of phone service for new customers in
days rather than weeks. In addition, DSET solutions help CLECs maintain a higher
level quality of service for their customers.

     Historically,  the Company has focused on the creation of applications that
could be  distributed  among many  processors  in order to solve highly  complex
problems in the network  management arena.  Additionally,  the Company developed
extensive  knowledge of  requirements  for multiple  protocols and  multi-vendor
communications as well as real time operating systems.  From this knowledge base
the  Company  created  suites  of  tools  that  facilitate  the  development  of
Telecommunications Management Network ("TMN") solutions. These tools and related
services are predominately sold to network equipment vendors,  both domestically
and  internationally.  Until 1999,  substantially all the Company's revenues had
been derived from  application  development  tools and  applications or services
based on TMN standards.

     The  Company's  continued  success will depend on  continued  growth in the
market  for  advanced  telecommunications  products  and  services  such  an LNP
solutions and OSS interconnect products.

     The Company's revenues are generated from two sources:  license and service
revenues  from CLECs and license and service  revenues  from  network  equipment
vendors.

     For the quarters  ended  September 30, 1999 and 1998,  the Company  derived
approximately 50.8% and 47.4%, respectively,  of its total revenues from license
revenues and approximately 49.2% and 52.6%, respectively,  of its total revenues
from service revenues. During the third quarter of 1999, revenues generated from
CLECs were approximately $7.4 million. Revenues generated from network equipment
vendors for tools and related services were approximately $5.5 million.

     The Company had no customer  accounting  for more than 10% of revenues  for
the quarter ending September 30, 1999, and one customer which



                                      -11-
<PAGE>

accounted for 18.3% of revenues for the quarter  ending  September 30, 1998. The
Company had no customer  accounting  for more than 10% of revenues  for the nine
months ending  September 30, 1999 and one customer which  accounted for 16.8% of
revenues for the nine months ending September 30, 1998. The Company  anticipates
that its results of  operations in any given period will continue to depend to a
significant  extent upon sales to a small  number of  customers.  As a result of
this customer concentration,  the Company's revenues from quarter to quarter and
business,  financial  condition  and  results  of  operations  may be subject to
substantial period-to-period fluctuations.

     The Company  derives a portion of its  revenues  from  international  sales
which constituted approximately 4.7% and 9.5% of the Company's total revenues in
the quarters  ended  September  30, 1999 and 1998,  respectively.  The Company's
international sales currently are United States dollar-denominated. As a result,
an  increase  in the value of the  United  States  dollar  relative  to  foreign
currencies  could make the Company's  products and services less  competitive in
international markets.

     On January 25, 1999, DSET Acquisition  Corp., a wholly-owned  subsidiary of
the Company,  consummated the acquisition of certain assets of Network  Programs
LLC ("NPL").  The purchase  price  consisted of $2.5 million  payable in cash to
NPL. NPL provided specialized software to CLECs.

      On September 30, 1999,  the Company  completed the purchase of the capital
stock of Konark Inc.  ("Konark") and related  technologies owned by an affiliate
of Konark for an aggregate of  approximately  $3.3 million financed through cash
paid at closing and certain deferred payments.

FORWARD-LOOKING STATEMENTS

     Statements  contained  in this Form  10-Q that are not based on  historical
fact are  "forward-looking  statements" within the meaning of Section 21E of the
Securities   Exchange   Act  of  1934,   as  amended   (the   "Exchange   Act").
Forward-looking  statements  may be  identified  by the  use of  forward-looking
terminology  such  as  "may,"  "will,"   "expect,"   "estimate,"   "anticipate,"
"continue," or similar terms,  variations of such terms or the negative of those
terms.  In  particular,  the  Company's  statements  relating  to the Year  2000
compliance of its products and internal systems are  forward-looking  statements
intended to qualify  for the safe harbor  provided  by the  Exchange  Act.  Such
forward-looking  statements involve risks and uncertainties,  including, but not
limited   to:   (i)  the   Company's   dependence   on  the   rapidly   evolving
telecommunications industry in general, and the local exchange carrier market in
particular,  (ii) the Company's  dependence on the TMN industry standard,  (iii)
rapid technological change in the Company's industry, (iv) risks associated with
the  development  and  marketing of new products,  including  carrier-to-carrier
applications,   such  as  LNP  or  OSS  gateways,   (v)  risks  associated  with
acquisitions  of  businesses  by  the  Company,   including  risks  relating  to
unanticipated  liabilities  or expenses or lower than expected  revenues of such
acquired businesses, and (vi) risks and variables,  including engineering costs,
associated with the  remediation of certain of the Company's  products which are
not Year 2000  compliant.  The success of the Company  depends to a large degree
upon increased utilization of its carrier-to-carrier  applications,  such as LNP
or OSS  interconnection  gateways,  by  telecommunications  carriers and network
equipment  vendors,  the buying  patterns of CLECs and the continued  demand for
application  development tools and custom application development services. As a
result of such risks and  others  expressed  from time to time in the  Company's
filings with the Securities and Exchange Commission (the



                                      -12-
<PAGE>

"Commission"),  the  Company's  actual  results may differ  materially  from the
results  discussed  in or implied by the  forward-looking  statements  contained
herein.

RESULTS OF OPERATIONS

THREE MONTHS ENDED  SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
30, 1998

     REVENUES.  Total  revenues  increased  65.0% to $12.9  million in the third
quarter of 1999 from $7.8 million in the third quarter of 1998. License revenues
increased  76.9% to $6.6 million in the third  quarter of 1999 from $3.7 million
in the third quarter of 1998. This increase was primarily  attributable to sales
of carrier-to-carrier products. Service revenues increased 54.3% to $6.3 million
in the third  quarter of 1999 from $4.1  million  in the third  quarter of 1998.
This  increase  was  primarily  attributable  to  increased  custom  development
projects  for  network  equipment  vendors,  CLECs  and other  carriers.  In the
quarters ended  September 30, 1999 and 1998, the Company  derived  approximately
50.8% and 47.4%,  respectively,  of its total revenues from license revenues and
approximately 49.2% and 52.6%, respectively,  of its total revenues from service
revenues.

     GROSS PROFIT.  The Company's gross profit  increased 64.4% to $10.2 million
in the third  quarter of 1999 from $6.2  million  in the third  quarter of 1998.
Gross profit  percentage  decreased  slightly to 79.1% of total  revenues in the
third  quarter of 1999 from 79.4% in the third  quarter  of 1998.  Gross  profit
percentage for license revenues increased to 90.5% for the third quarter of 1999
from 89.4% in the third  quarter of 1998 due to less third  party  software as a
component of revenues and sales of more  internally  developed  products.  Gross
profit  percentage for service revenues  decreased to 67.3% in the third quarter
of 1999 from 70.3% in the third  quarter of 1998.  This  decrease was  primarily
attributable  to  increased  use  of  outside  consultants  to  complete  custom
development  projects.   The  Company  anticipates  that  it  will  continue  to
experience   downward   pressure  relative  to  service  revenues  due  to  such
outsourcing.

     SALES AND MARKETING EXPENSES.  Sales and marketing expenses increased 45.9%
to $3.4  million  in the third  quarter  of 1999 from $2.3  million in the third
quarter of 1998,  and decreased to 26.0% of total  revenues in the third quarter
of 1999 from 29.3% of total  revenues in the third quarter of 1998. The increase
in such costs in absolute  dollars was primarily  attributable  to the hiring of
additional   personnel  for  the   Company's   sales  force  and  the  marketing
departments.

     RESEARCH AND PRODUCT DEVELOPMENT EXPENSES. Research and product development
expenses  increased 97.6% to $3.0 million in the third quarter of 1999 from $1.5
million in the third quarter of 1998,  and increased to 22.9% of total  revenues
in the third  quarter of 1999 from 19.1% of total  revenues in the third quarter
of 1998.  This  increase in research and product  development  expenses  both in
absolute dollars and as a precentage of revenues was due primarily to the hiring
of former NPL employees and additional  personnel  expenses  attributable  to an
increase  in  staffing  due  to  expansion  in  the  number  of  projects  under
development.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
increased  100.2% to $1.2 million in the third  quarter of 1999 from $600,391 in
the third quarter of 1998,  and increased to 9.3% of total revenues in the third
quarter of 1999 from 7.7% of total  revenues in the third  quarter of 1998.  The
increase of general and  administrative  expenses was due to planned  additional
staffing, recruiting and relocation costs and outside services costs.



                                      -13-
<PAGE>

     INTEREST  INCOME.  Interest income  decreased to $567,237 from $604,521 for
the quarter ending  September 30, 1999 reflecting lower interest rates and lower
average daily balances in 1999 as compared to the corresponding period in 1998.

     INTEREST  EXPENSE AND OTHER INCOME AND EXPENSES,  NET. Net interest expense
and other  income and  expense  increased  to  $21,017  for the  quarter  ending
September 30, 1999 from $17,117 from the quarter ending September 30, 1998.

     INCOME TAXES. The Company's effective tax rate was 33.9% and 35.5% for each
of the quarters ended September 30, 1999 and 1998, respectively.  Such effective
tax rates are lower than  statutory  tax rates due  primarily  to  research  and
development tax credits.  As of September 30, 1999, the research and development
tax credit has not been renewed. All indications are that it will be renewed. If
this provision is not  retroactively  renewed to June 30, 1999, the loss of this
credit  will  result in a higher  effective  tax rate for the  Company in future
periods.  The  higher  rate in  1998  was due to the  non-deductible  nature  of
deferred stock compensation associated with the issuance of stock options.

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998

     REVENUES.  Total  revenues  increased  46.9% to $29.5  million for the nine
months  ending  September 30, 1999 from $20.1 million for the nine months ending
September 30, 1998.  License  revenues  increased 60.8% to $16.0 million for the
nine months  ending  September  30,  1999 from $9.9  million for the nine months
ending  September  30,  1998.  The  increase  in  revenue  is due to the sale of
carrier-to-carrier  products.  Service revenues increased 33.3% to $13.5 million
for the nine months  ending  September  30, 1999 from $10.2 million for the nine
months ending September 30, 1998. This increase was primarily attributable to an
increase in custom development projects and maintenance fees. In the nine months
ending September 30, 1999 and 1998, the Company derived  approximately 54.1% and
49.4%,   respectively,   of  its  total  revenues  from  license   revenues  and
approximately 45.9% and 50.6%, respectively,  of its total revenues from service
revenues.

     GROSS PROFIT.  The Company's gross profit  increased 45.1% to $23.3 million
for the nine months  ending  September  30, 1999 from $16.1 million for the nine
months ending September 30, 1998. Gross profit percentage  decreased to 79.1% of
total revenues for the nine months ending  September 30, 1999 from 80.1% for the
nine months  ending  September  30, 1998.  Gross profit  percentage  for license
revenues  increased to 92.6% for the nine months ending  September 30, 1999 from
88.4% for the nine  months  ending  September  30,  1998 due to less third party
software  as a  component  of revenues  and sales of more  internally  developed
products.  Gross profit  percentage for service revenues  decreased to 63.2% for
the nine months ending  September 30, 1999 from 71.9% for the nine months ending
September 30, 1998. This decrease was primarily attributable to increased use of
outside  consultants  to  complete  custom  development  projects.  The  Company
anticipates that it will continue to experience  downward  pressure  relative to
service revenues due to such outsourcing.

     SALES AND MARKETING EXPENSES.  Sales and marketing expenses increased 36.5%
to $8.7 million for the nine months ending  September 30, 1999 from $6.4 million
for the nine months ending  September 30, 1998,  and decreased to 29.6% of total
revenues  for the nine  months  ending  September  30,  1999 from 31.8% of total
revenues for the nine months ending September 30,

                                      -14-
<PAGE>

1998.  This  increase  in costs was  primarily  due to the hiring of  additional
personnel  for the  Company's  sales force and the  marketing  department  and a
provision for bad debts. The decrease as a percentage of revenue is attributable
to lower  commission  rates associated with employed sales personnel as compared
to outside agents' commission.

     RESEARCH AND PRODUCT DEVELOPMENT EXPENSES. Research and product development
expenses  increased  69.0% to $7.8 million for the nine months ending  September
30, 1999 from $4.6 million for the nine months ending  September  30, 1998,  and
increased to 26.3% of total  revenues for the nine months  ending  September 30,
1999 from 22.9% of total revenues for the nine months ending September 30, 1998.
This  increase in research  and product  development  expenses  both in absolute
dollars and as a percentage  of revenues was due  primarily to the hiring of NPL
employees, the hiring of additional outside consultants and additional personnel
expenses  attributable  to an increase in staffing  due to an  expansion  in the
number of projects under development.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
increased  79.4% to $3.2 million for the nine months  ending  September 30, 1999
from $1.8 million for the nine months ending  September 30, 1998,  and increased
to 10.8% of total  revenues for the nine months  ending  September 30, 1999 from
8.9% of total  revenues  for the nine months  ending  September  30,  1998.  The
increase of general and administrative  expenses was due to additional staffing,
recruiting and relocation costs and outside services costs.

     INTEREST  INCOME.  Interest  income  increased  to $1.7  million  from $1.3
million for the nine months ending  September 30, 1999 due primarily to interest
earned on higher cash and short-term  investment  balances available as a result
of the Company's initial public offering of its Common Stock in March 1998.

     INTEREST  EXPENSE AND OTHER INCOME AND EXPENSES,  NET. Net interest expense
and other  income and expense  increased  to $96,472 for the nine months  ending
September 30, 1999 from $44,834 from the nine months ending  September 30, 1998,
reflecting  higher  interest,  a larger loss from the Company's  European  joint
venture and other miscellaneous cost increases.

     INCOME TAXES. The Company's effective tax rate was 34.5% and 36.1% for each
of the nine  months  ending  September  30,  1999 and 1998,  respectively.  Such
effective  tax rates were lower than the  statutory  tax rates due  primarily to
research  and  development  tax  credits.  The rate is higher in 1998 due to the
non-deductibility of deferred stock compensation associated with the issuance of
stock options. As of September 30, 1999, the research and development tax credit
has not been  renewed.  All  indications  are that it will be  renewed.  If this
provision in the tax code is not  retroactively  renewed to June 30,  1999,  the
loss of this credit will result in a higher  effective  tax rate for the Company
in future periods.

LIQUIDITY AND CAPITAL RESOURCES

     Since its  inception  in 1989,  the Company  has  financed  its  operations
primarily through cash generated by operations and cash raised through its March
1998 initial public  offering.  At September 30, 1999, the Company's  cash, cash
equivalents and marketable securities aggregated approximately $39.9 million, of
which cash and cash  equivalents  aggregated  approximately  $1.8  million.  The
Company's working capital was $48.8 million at September 30, 1999.



                                      -15-
<PAGE>

     Accounts  receivable  increased to $16.0 million at September 30, 1999 from
$9.1  million at December  31, 1998 as a result of  increased  unbilled  project
revenue and delays in the collection of certain accounts receivable. Included in
accounts  receivable was approximately  $4.3 million of unbilled project revenue
at September 30, 1999 as compared to $1.5 million at December 31, 1998.

     The Company  bills its  customers,  several of which are based in Korea and
Japan, in U.S.  dollars at agreed-upon  contractual  terms.  The Company has not
experienced any significant negative effects on its liquidity as a result of the
volatility and  devaluation  trends that have been  experienced in certain Asian
markets,  although no assurance can be made that the Company will not experience
difficulty  collecting  accounts  receivable  from such customers in the future.
Accounts receivable at September 30, 1999 includes  approximately  $753,865 from
customers in this region.

     The Company's  capital  expenditures  were  approximately  $2.1 million and
$474,556 for the nine months ending  September 30, 1999 and 1998,  respectively.
The increase in equipment and facilities-related  expenditures are primarily the
result  of  the  move  to  an  expanded  corporate   headquarters   facility  in
Bridgewater,  New Jersey and the move of the Texas office to accommodate current
and future growth.

     In June 1999, the Company  entered into a five year capital lease agreement
at an annual  interest  rate of 8.21%.  Assets  recorded  under  this  lease are
included in fixed assets. Annual lease payments approximate $180,000.

     In August 1997, the Company obtained an unsecured revolving credit facility
with a bank  pursuant  to which the  Company  may borrow up to a maximum of $3.0
million.  Borrowings under this line of credit bear interest at the bank's prime
rate less 0.25% on aggregate  principal  amounts  outstanding  of less than $1.0
million and at the bank's prime rate for aggregate  principal  amounts exceeding
$1.0 million. No borrowings under this line were outstanding as of September 30,
1999. This credit facility contains, among other provisions, covenants which (i)
mandate the amount of working  capital the Company  must  maintain at the end of
each  calendar  quarter  and (ii)  restrict  the  Company's  ability to pay cash
dividends. The unsecured revolving credit facility expires on August 5, 2000.

     On March 18, 1998, the Company  consummated  an initial public  offering of
3,500,000  shares of its  Common  Stock at a price to the  public of $16.00  per
share of  which  2,500,000  shares  were  issued  and  sold by the  Company  and
1,000,000 shares were sold by certain Selling Shareholders.  The net proceeds to
the Company from the offering  were  approximately  $36.1  million.  On April 7,
1998,  certain  Selling  Shareholders  sold an additional  525,000 shares of the
Company's  Common  Stock at a price to the  public of $16.00  per share upon the
consummation of the exercise of the  Underwriters'  over-allotment  option.  The
Company  did not  receive  any of the  proceeds  from the sale of  shares by the
Selling Shareholders.

     The net  proceeds  received by the Company  upon the  consummation  of such
offering,   pending   specific   application,   are   invested  in   short-term,
investment-grade, interest-bearing instruments.



                                      -16-
<PAGE>

     The Company believes that its existing  available cash, credit facility and
the cash flow  expected  to be  generated  from  operations,  together  with the
proceeds  from its  initial  public  offering,  will be  adequate to satisfy its
current and planned operations for at least the next 12 months.  There can be no
assurance, however, that the Company will not require additional financing prior
to such time to fund its operations or possible acquisitions.

     ACQUISITIONS

     On January 25, 1999, DSET  Acquisition  Corp., a wholly owned subsidiary of
the Company,  acquired  certain  assets of NPL for $2.5  million.  NPL was a New
Jersey-based  company which  specialized  in software aimed at reducing the time
necessary for a CLEC to provide prospective  customers with sales proposals that
clearly define the CLEC's  current  service  offering  compared to the incumbent
local exchange carrier's current service offering.

      On September  30, 1999,  DSET  Corporation  purchased the capital stock of
Konark and related technologies owned by an affiliate of Konark for an aggregate
of approximately  $3.3 million financed through cash paid at closing and certain
deferred  payments.  The  purchase  provided  DSET with all  rights  to: (i) two
electronic-bonding  gateways that the Company previously had been reselling; and
(ii) a new  Electronic  Access  Ordering  product.  Electronic  Access  Ordering
facilitates  the  ordering  of  high-speed  access  circuits  by a CLEC  from an
incumbent  local  exchange  carrier  enabling  the CLEC to rapidly  activate new
service for its customers.

YEAR 2000 COMPLIANCE

     ASSESSMENT.  The Company  believes  that its exposure to Year 2000 problems
lies primarily in the following areas: (i) its internal operating systems;  (ii)
its tool suites,  custom applications and pre-built  electronic bonding gateways
and network  management  applications;  and (iii)  systems of third parties with
whom the Company has  material  relationships.  The  Company has  completed  its
assessment with respect to its internal  operating systems and tool suites.  The
Company  continues  to evaluate  its  exposure  with  respect to certain  custom
applications and its relationships with third parties.

     INTERNAL  OPERATING  SYSTEMS.  The Company believes its internal  operating
computer  systems and  management  information  system are  currently  Year 2000
compliant,  and  the  Company  does  not  believe  that  there  will  be  future
significant costs related to future maintenance of such compliance.

     TOOL  SUITES AND  PRE-BUILT  APPLICATIONS.  The Company  has  conducted  an
internal  review  and  believes  that its  tool  suites  (and  their  update  if
applicable)  developed  after May 27,  1997 have been  tested  and are Year 2000
compliant. These products include:


                                      -17-
<PAGE>


                   PRODUCT NAME                              VERSION
                   ------------                              -------
                   ASN.C/C++                             3.5.3 and later
                   Agent Tester                          2.0.1 and later
                   CMIP Translator                       1.0.1 and later
                   Distributed Systems Generator         4.2.0 and later
                   GDMO Agent Emulator                   2.0.0 and later
                   GDMO Agent Toolkit                    2.0.0 and later
                   GDMO Compiler                         3.0.0 and later
                   LNP Test Extensions                   2.0.0 and later
                   Manager Code Generator                1.0.4 and later
                   Manager Toolkit                       1.0.0 and later
                   Marben OSIAM Stack                  2.6f/2.6g and later
                   Visual Agent Builder                  1.0.0 and later
                   LSMS                                  2.0.1 and later

     The Company's pre-built  electronic bonding gateways and network management
applications  have been tested for Year 2000  compliance.  All  modifications to
these applications are analyzed for Year 2000 compliance prior to their release.

     CUSTOM APPLICATIONS.  In November 1998, the Company determined that certain
custom applications  developed and delivered to approximately ten customers were
not Year 2000 compliant.  All of these customers were notified of such Year 2000
compliance  status in November 1998. The Company has also analyzed the extent to
which any of the affected custom  applications were integrated by customers into
other products  which may expose the Company to claims from its  customers.  The
Company  has  agreed  to  assist  each  of  these  customers  with  any  and all
remediation  solutions  required  to  achieve  Year  2000  compliance  with  the
Company's products.  To date, the Company's remediation has not significantly or
materially  adversely affected the Company's  financial condition and results of
operations.  The Company has incurred  certain  remediation  expenses related to
such  compliance,   pursuant  to  the  warranty  provisions  of  the  applicable
agreements. A failure to properly implement any correction, or problems with any
correction,  could cause  errors in  customers'  products  which may  materially
impact the functionality of those products.

     THIRD PARTY RELATIONSHIPS.  The Company is dependent on various third party
software and hardware  vendors and  suppliers.  The Company is also dependent on
third party service providers and partners such as telephone  companies,  banks,
insurance carriers,  auditors and marketing partners.  The failure of such third
parties to deliver Year 2000 compliant  products or to remediate  their internal
systems could  jeopardize the Company's  ability to meet its  obligations to its
customers.  As a result,  the Company is presently  conducting  inquiries of its
outside vendors, suppliers, service providers and marketing partners to identify
and resolve Year 2000 exposure.  To date, the Company has identified one company
whose product is not Year 2000 certified.  Tests are planned to verify Year 2000
compliance for this product. Upon


                                      -18-
<PAGE>

completion of the testing,  the Company will be able to assess such exposure and
financial inpact, if any, should such party fail to be Year 2000 compliant.

      RISKS OF YEAR 2000 ISSUES. The Company expects to identify and resolve all
Year  2000  problems  that  could  materially  adversely  affect  its  business,
financial condition or results of operations. However, the Company believes that
it is not  possible to  determine  with  complete  certainty  that all Year 2000
problems affecting the Company have been identified or corrected.  Further,  the
Company  cannot  accurately  predict how many failures  related to the Year 2000
Problem will occur or the severity,  duration or financial  consequences of such
failures.  The Company believes that the most reasonably  likely worst case Year
2000 scenario would include a combination of some or all of the following:

     o    The Company's internal operating systems may fail or provide erroneous
          information.  Such  failure could  result in:  reduced  utilization of
          technical  or  other  personnel;  the  inability  to  timely  generate
          financial reports and  statements;  and  improper  billing and  record
          keeping;

     o    A number  of  system  failures  that may  require  significant efforts
          by  the Company  or its customers  to  prevent or  alleviate  material
          business disruptions; and

     o    Failure in HVAC, lighting,  telephone, security and similar systems on
          which the Company relies.

     Additionally,  the Company  cannot  guarantee that its products will not be
used by other companies, or its customers, to build applications which might not
be Year 2000 compliant,  or that the Company's  products or  applications  built
with  the  Company's  products  will not be  integrated  by the  Company  or its
customers or interact with  non-compliant  software or other  products which may
expose the Company to claims from its customers.

     COSTS.  Other  than  time  spent  by the  Company's  personnel,  the  costs
associated with remediating non-compliant custom applications and assessing Year
2000 compliance  issues have not been  significant to date. The Company believes
that the  continued  analysis of  compliance  of new  releases  of products  and
evaluation of potential Year 2000 problems will result in aggregate expenditures
of less than $100,000.

     CONTINGENCY  PLANS.  The Company believes its plans for addressing the Year
2000 Problem are adequate. The Company does not believe it will incur a material
financial  impact  from  system  failures,  or from the  costs  associated  with
assessing the risks of failure,  arising from the Year 2000 Problem. The Company
has assembled a response team which will be on 24 hour call during the change of
1999 to the year 2000.  Consequently,  the  Company  does not intend to create a
detailed  contingency  plan.  In the event that the Company does not  adequately
identify and resolve its Year 2000 issues, the absence of a detailed contingency
plan may materially adversely affect the Company's business, financial condition
and results of operations.



                                      -19-
<PAGE>

EUROPEAN MONETARY UNION

     On January 1, 1999,  eleven of the fifteen member countries of the European
Union set fixed conversion rates between their existing currencies and the euro.
At such time,  these  participating  countries  adopted the euro as their common
legal  currency.  The eleven  participating  countries now issue  sovereign debt
exclusively  in euros and will  redenominate  outstanding  sovereign  debt.  The
legacy  currencies  will continue to be used as legal tender through  January 1,
2002, at which point the legacy  currencies  will be canceled and euro bills and
coins will be used for cash transactions in the participating countries.

      The Company  does not  denominate  its  international  revenues in foreign
currencies. The Company currently does not believe that the euro conversion will
have a material  impact on the  Company's  results of  operations  or  financial
condition.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The Company  believes  that it is not  subject to a material  impact to its
financial  position or results of operations  relating to market risk associated
with derivative securities.



                                      -20-
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

CHANGES IN SECURITIES

     The following  information relates to all securities of the Company sold by
the  Company  within  the past  quarter  which  were not  registered  under  the
securities laws at the time of grant, issuance and/or sale:

     OPTION GRANTS

     1.    During the third quarter of 1999,  the Company  granted stock options
           pursuant to its 1998 Stock Plan which were not  registered  under the
           Securities  Act of 1933, as amended (the  "Securities  Act").  All of
           such option grants were granted at the then current fair market value
           of  the  Common  Stock.   The  following  table  sets  forth  certain
           information regarding such grants during the quarter:

                                                    WEIGHTED
                                                     AVERAGE
                                    NUMBER          EXERCISE
                                  OF SHARES          PRICE
                                  ---------         --------

                                   227,750           $11.38

     COMMON STOCK ISSUANCES

     2.    During the third quarter of 1999, the Company issued shares of Common
           Stock  pursuant to exercises of stock options  granted under its 1993
           Stock Option Plan and 1998 Stock Plan which were not registered under
           the   Securities   Act.  The  following   table  sets  forth  certain
           information regarding such issuances during the quarter:

                                                    WEIGHTED
                                                     AVERAGE
                                    NUMBER          EXERCISE
                                  OF SHARES          PRICE
                                  ---------         --------

                                    99,943            $2.63

     The Company did not employ an underwriter  in connection  with the issuance
of the securities described above. The Company believes that the issuance of the
foregoing  securities was exempt from registration under either (i) Section 4(2)
of the Securities Act as transactions not involving any public offering and such
securities  having  been  acquired  for  investment  and  not  with  a  view  to
distribution,  or (ii) Rule 701 under the  Securities Act as  transactions  made
pursuant  to a  written  compensatory  benefit  plan or  pursuant  to a  written
contract  relating  to  compensation.  All  recipients  had  adequate  access to
information about the Company.



                                      -21-
<PAGE>

USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING

     On  March  12,  1998,  the  Commission  declared  effective  the  Company's
Registration Statement  (Registration Statement No. 333-43827) as filed with the
Commission in connection  with the Company's  initial public  offering of Common
Stock, which was managed by BT Alex. Brown Incorporated,  BancAmerica  Robertson
Stephens and  SoundView  Financial  Group,  Inc.  Pursuant to such  Registration
Statement,  the Company  registered and sold an aggregate of 2,500,000 shares of
its Common Stock,  for a gross  aggregate  offering price of $40.0 million.  The
Company incurred  underwriting  discounts and commissions of approximately  $2.8
million.  In connection with such offering,  the Company incurred total expenses
of  approximately  $1.1  million.  As of September  30,  1999,  all of the $36.1
million in net  proceeds  received  by the  Company  upon  consummation  of such
offering,   pending   specific   application,   were  invested  in   short-term,
investment-grade, interest-bearing instruments.

     On January 25, 1999, DSET Acquisition  Corp., a wholly-owned  subsidiary of
the Company,  consummated the acquisition of certain assets of NPL. The purchase
price consisted of $2.5 million payable in cash to NPL. NPL provided specialized
software to CLECs.

      On September  30, 1999,  DSET  Corporation  purchased the capital stock of
Konark and related technologies owned by an affiliate of Konark for an aggregate
of approximately  $3.3 million financed through cash paid at closing and certain
deferred  payments.  Konark  provided  software  which  enabled CLECs to rapidly
activate new services for their customers.

     For  working  capital  restrictions  and  limitations  on  the  payment  of
dividends,  see "Item 2.  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

ITEM 5.   OTHER INFORMATION.

     RESIGNATION OF DIRECTOR

     Effective  September 20, 1999,  Mr. John Thibault  resigned his position as
member of the Company's Board of Directors to pursue other interests.

     APPOINTMENT OF DIRECTOR

     On September 14, 1999,  Charles  Daniel Yost joined the Company's  Board of
Directors.  Mr.  Yost  currently  serves as the  president  and chief  operating
officer of Allegiance  Telecom,  Inc. Prior to joining Allegiance  Telecom,  Mr.
Yost  was  the  president  and  chief   operating   officer  of  NETCOM  On-Line
Communication  Services, Inc. Prior to that, Mr. Yost served as the president of
the Southwest Region of AT&T Wireless Services, Inc.

                                      -22-
<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  Exhibits.

          27  - Financial Data Schedule.

     (b)  Reports on Form 8-K.

          No reports on Form 8-K were filed  during the  quarter  for which this
          report on Form 10-Q is filed.



                                      -23-
<PAGE>

                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                       DSET Corporation




DATE:  November 15, 1999               By: /s/ William P. McHale, Jr.
                                           -----------------------------------
                                           William P. McHale, Jr.
                                           President and Chief Executive
                                           Officer
                                           (Principal Executive Officer)




DATE:  November 15, 1999               By: /s/ Bruce M. Crowell
                                           -----------------------------------
                                           Bruce M. Crowell
                                           Vice President and Chief Financial
                                           Officer
                                           (Principal Financial and Accounting
                                           Officer)